| If people are willing to buy my product for $100 at most, I will earn $83 pre VAT (20%). If my product costs $73 to make, then I make $10 profit, and the government earns $17. The government then spends this $17 to the benefit of the citizens of that country. The tax burden either falls on the producer or the consumer depending on price elasticity of demand. High elasticity would result in the producer needing to absorb the VAT. But high elasticity for individual products usually results from increased competition. But if there is not much competition, and elasticity is still high, then the company's profit margins are being eroded by the tax, with a greater share going to the government. If the average price elasticity of demand for imports is higher than domestic production, then one could argue this is not fair. Also, each EU country has certain discretion over how to charge VAT for groups of products so there is the potential for unfairness and tariff like impacts. But I will admit that it is a difficult case to make that a consumption tax is discriminatory. |